Compliance & Product Issues Spur NJOY's Chapter 11

SCOTTSDALE, Ariz. — NJOY Inc., a long-established player in the electronic cigarette segment, has filed for Chapter 11 bankruptcy protection.

According to ECigIntelligence.com, the Scottsdale-based e-cigarette manufacturer cited the market performance of its second generation Kings disposable e-cigarette in 2013-2014 and costs associated with a subsequent relaunch of the NJOY brand.

NJOY's filing also mentions "substantial expenses" related to the Food and Drug Administration's (FDA) new deeming rule. The rule, which went into effect on Aug. 8, extends the agency's regulatory authority to all tobacco products — including electronic cigarettes. 

As part of the rule, manufacturers of all newly regulated products are required to show that the products meet the applicable public health standard set forth in the law and to receive marketing authorization from the FDA, unless the product was on the market as of Feb. 15, 2007. 

NJOY has also incurred expenses defending the patent infringement case brought against it and other e-cig companies by Imperial Tobacco's Fontem Ventures. A declaration by Jeffrey Weiss, NJOY's interim president and general counsel, said the company spent more than $2.5 million on the Fontem defense, the report added.

The company's largest single creditor is casino operator Caesars Entertainment, as a result of a sponsorship agreement.

Weiss also noted in the declaration that NJOY hired Barclay's Capital Inc. to act as investment advisor in January. Barclay's explored a potential sale of NJOY's business and contacted 30 potential buyers. However, no bids were received at that time.

He added that in June Barclay's again "tested the market" by contacting 12 potential buyers who had previously expressed interest in NJOY. Of those 12, five executed non-disclosure agreements to conduct due diligence and two have conducted "substantial" due diligence, he said.

Under the Chapter 11 petition to the United States Bankruptcy Court for the District of Delaware, NJOY seeks to carry on in business, paying staff and certain suppliers essential to its operations while it tries to sell its assets. A hearing in the court was slated for Wednesday.